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PPC profit margins under pressure

South African cement manufacturer, PPC says the profit margins of its subsidiary PPC Zimbabwe are under pressure from the recent inflation developments in the country.

PPC Zimbabwe
PPC Zimbabwe

This comes as the country’s official inflation has spiked to a post dollarisation high of 42,1 percent for December, 2018 from 0,1 percent in February, 2017.

In a trading update for the nine months to December, 2018, the group announced on Tuesday that the subsidiary’s volumes grew by “low single digits compared to the prior year” due to operational challenges experienced in the third quarter of the financial year.

“Nonetheless, recent policy announcements regarding fuel price increases have placed consumers in Zimbabwe under strain. “The impact of fuel increases and cost of living increases afforded to PPC Zimbabwe employees is expected to impact operating profit margins by one to two percent,” the company said.

In January, President Emmerson Mnangagwa announced a review of fuel pump prices to $3,11 and $3,31 per litre of diesel and petrol in a move claimed to be aiming at negative arbitrage opportunities from the previous price levels.

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The company, however, says it envisages that its cost saving measures will ensure that operating profit margins remain within previously guided ranges.

“PPC Zimbabwe management is implementing a number of initiatives to mitigate the impact of inflation and liquidity constraints on the business and on the broader PPC Group,” the company said.

Measures which the company is pursuing in this regard include focusing on “local procurement” and “increasing exports to neighbouring countries”.

The group said average cement prices in Southern African increased by one to two percent while its cement volumes were down two to three percent “against the backdrop of estimated market contraction of four to five percent”.

“An uncharacteristically weak December retail segment and subdued construction activity contributed to the contraction,” the company said. Total cement imports increased by 80 percent for January, 2018 to November, 2018 compared to the prior comparable period, with imports into Cape Town increasing by 48 percent to 209 000 tonnes.

In South Africa, PPC says it intends to maintain price increases implemented. The company says it is engaging the authorities with regard to imports to ensure industry sustainability and also market stabilisation. “PPC Zimbabwe remains focused on cash preservation, while in the DRC, the business continues to entrench route to market strategies to increase volumes and prices.

“In Rwanda, the Cimerwa business continues with business optimisation in order to achieve optimal capacity,” the company said. DailyNews